Uruguay’s Central Bank raised the benchmark interest rate from 8.5% to 8.75% to better align inflation expectations with the target rate of 4.5%. Year-on-year inflation reached 5.03%, while core inflation rose, driven by tradable inflation. The U.S. Federal Reserve’s recent rate cuts and improved GDP projections for 2024 contribute to the dynamic economic landscape.
On Monday, Uruguay’s Central Bank (BCU) decided to increase the benchmark interest rate, known as the TPM, from 8.5% to 8.75%. This adjustment aims to align inflation and expectations to achieve an annual target of 4.5% over the past 24 months. The adjustment marks the first change in the TPM since its decrease in April, when it was lowered from 9%. In November, year-on-year inflation stood at 5.03%, having consistently remained within the target range for 18 months, the longest duration since the inflation targeting policy commenced.
The monetary policy committee observed that core inflation has risen for the second month, surpassing headline inflation, primarily due to increased tradable inflation. Despite these challenges, average analyst expectations for two-year inflation decreased slightly to 5.83% in November, but experienced a small uptick of 9 basis points to 5.89% in December. The report also indicates a decline in activity outlook due to slower growth in advanced economies, coupled with persistent inflation in the core components.
Additionally, the Federal Reserve in the United States has reduced interest rates for the third consecutive meeting, leading markets to foresee a slower trajectory for future rate cuts. The Uruguayan economy showed robust growth, expanding 4.1% year-on-year in the third quarter, with a projected average growth of 3.4% for 2024. The Central Bank maintains a favorable view of the monetary policy transmission channels based on economic data and forecasts.
Furthermore, the BCU’s Expectations Survey revealed a slight increase in GDP growth forecasts for 2024, now estimated at 3.1%, with analysts predicting growth to range from 2.9% to 3.53%. Year-on-year inflation for 2024 is anticipated to reach 5.37%, reflecting a response to December’s 0.2% change in inflation rates.
In recent months, Uruguay’s Central Bank has engaged in careful monitoring of inflation trends and economic growth forecasts amid shifting global economic scenarios. The central bank’s objectives revolve around maintaining price stability while fostering economic growth. Significantly, the BCU employs inflation targeting to guide its monetary policies, with specific interest rate adjustments that reflect the current economic landscape and inflation expectations.
The increase in the benchmark interest rate by Uruguay’s Central Bank reflects a proactive approach to managing inflation expectations amid evolving economic conditions. The sustained growth in the economy, along with the Federal Reserve’s actions, underscores a complex interplay of global influences impacting national monetary policy. As economic indicators suggest variable growth rates and inflation dynamics, the BCU’s decisions are pivotal in shaping Uruguay’s economic stability moving forward.
Original Source: en.mercopress.com
